Five comments were submitted on the proposed regulations, which are available at https://www.regulations.gov or upon request. No public hearing on the proposed regulations was requested or held.

This Summary of Comments and Explanation of Revisions describes those comments and the revisions made in response to those comments. The comments also made various requests for future guidance, which the Treasury Department and the IRS will consider as part of a potential future rulemaking addressing, among other things, general issues under section 367(d).

A. In general

To terminate the continued application of section 367(d) upon a repatriation of intangible property, the proposed regulations required the recipient of the intangible property to be a qualified domestic person. The proposed regulations defined a qualified domestic person by reference to an “initial U.S. transferor,” a “qualified successor,” or a U.S. person that is either an individual or “qualified corporation” related to either the initial U.S. transferor or qualified successor. See proposed §1.367(d)-1(f)(4)(iii).

As the preamble to the proposed regulations explained in part I.C of the Explanation of Provisions, the definition of qualified domestic person was based on the principle that it is generally appropriate to terminate the continued application of section 367(d) only when all the income produced by the intangible property during its useful life, and all gain recognized on a disposition of the intangible property, will be subject to current tax in the United States as to the qualified domestic person while that person holds the property. See 88 FR 27819, 27824. The proposed regulations further described how, in the case of a repatriation to an initial U.S. transferor, the repatriation restored the circumstances that existed at the time of the original section 367(d) transfer. See Id.

B. Partnerships

The proposed regulations neither treated a domestic partnership as a qualified domestic person, nor adopted an approach that would treat a partnership as an aggregate of its partners (aggregate approach) for purposes of determining qualified domestic person status. One comment suggested that the Treasury Department and the IRS modify the definition of qualified domestic person to include partnerships in which all of the partners in the partnership would themselves be qualified domestic persons, or partnerships that made the original outbound transfer of the intangible property subject to section 367(d) when there is substantial continuity of ownership of that partnership during the period beginning on the date of the initial section 367(d) transfer and ending on the date of the repatriation of the intangible property. As part of the modification, the comment also described various approaches for addressing the concerns identified in the proposed regulations regarding, for example, the potential for post-repatriation changes to partnership allocations or liquidation rights to frustrate the purposes of the proposed regulations if a partnership, or a partner in the partnership, were permitted as a qualified domestic person in certain cases. See 88 FR 27819, 27824 for a discussion of those concerns. Specifically, the comment suggested that the final regulations, in adopting the modification, could limit its application by requiring a specific period after the repatriation during which the ownership or interests in the partnership could not change. Additionally, the comment suggested that, to provide flexibility while protecting against the concerns outlined in the proposed regulations, the final regulations could allow the Commissioner to exercise discretion at a taxpayer’s request to determine that a post-distribution change in the ownership of the partnership, or in the economic rights of the partners with respect to the intangible property, would not taint the partnership’s status as a qualified domestic person. Finally, the comment also described more general, long-standing issues under section 367(d) related to the treatment of partnerships within the section 367(d) regime, and ultimately suggested that resolution of those issues should not impede finalizing the proposed regulations.

The final regulations do not adopt this comment and therefore adopt the definition of qualified domestic person from the proposed regulations without change. The issues identified by the comment, along with potential solutions to those issues, were acknowledged in the preamble to the proposed regulations, and the Treasury Department and the IRS have determined that the approach outlined in the proposed regulations continues to strike the appropriate balance between implementing the general purpose and scope of the proposed regulations (ensuring that only appropriate repatriations terminate the continued application of section 367(d)) and concerns regarding administrability and compliance. The solutions described in the comment, like the alternatives described in the proposed regulations, would not achieve this balance because the solutions would either expand the scope of the proposed regulations in an inappropriate manner (that is, by expanding the basic principle upon which the proposed regulations rests), or the solutions would, given the relatively narrow scope of the proposed regulations, impose an undue burden on taxpayers and the IRS. See 88 FR 27819, 27824 (describing, with respect to the latter, an approach modeled off of the rules in §§1.367(a)-3 and 1.367(a)-8 regarding gain recognition agreements and noting that approach would be “unworkable due to the compliance and administrative burden.”).

Another comment described general, long-standing issues under section 367(d) related to the treatment of partnerships. These issues were generally identified in the proposed regulations. See id. For example, the comment pointed to §§1.367(a)-1T(c)(3)(i) and 1.367(d)-1T(a), which apply an aggregate approach upon an initial outbound transfer. The comment did not include any explicit suggestion for change regarding the proposed regulations, but the Treasury Department and the IRS may consider these issues as part of future rulemaking.

C. S corporations

As described in part I.A of this Summary of Comments and Explanation of Revisions, the proposed regulations limited qualified domestic person status to “qualified corporations” in the case of a qualified successor or in the case of a U.S. person related to either the initial U.S. transferor or qualified successor. See proposed §1.367(d)-1(f)(4)(iii). A qualified corporation, in relevant part, did not include an S corporation (as defined in section 1361(a)). See Id.

One comment suggested that the final regulations allow S corporations as qualified corporations. The comment noted that the shareholders of an S corporation must generally be U.S. individuals subject to U.S. taxation, which ensures that income attributable to intangible property held by an S corporation would be subject to U.S. taxation (though the comment noted that the limitation is not absolute, as certain plans described in section 401(a) may be shareholders of an S corporation).

Section 512(e)(3) excludes a non-individual shareholder that is an employee stock ownership plan (ESOP) (as defined in section 4975(e)(7) from the scope of section 512(e)(1), which provides that, in the case of certain non-individual shareholders of the S corporation, any item of income, gain, loss, or deduction, and any gain or loss on the disposition of stock in the S corporation, is taken into account by such non-individual shareholders as unrelated business taxable income (UBTI). As a result, the pro rata share of an S corporation’s items of income taken into account by an ESOP shareholder is not subject to current taxation as UBTI. As noted in part I.A of this Summary of Comments and Explanation of Revisions, a principle for the definition of qualified domestic person is that termination of the continued application of section 367(d) should occur only when all the income produced by the intangible property, as well as gain recognized on a disposition of the intangible property, is subject to current tax in the United States. In the case of an S corporation, that result is not guaranteed.

The final regulations, therefore, do not adopt this comment and retain the definition of qualified domestic person from the proposed regulations without change. The Treasury Department and the IRS considered alternative approaches to address this comment – such as an aggregate approach, with prohibitions applicable to S corporation shareholders that are ESOPs – but determined that such approaches were effectively unworkable due to the compliance and administrative burden discussed in part II.B of this Summary of Comment and Explanation of Revisions in connection with the comment on partnerships.

Proposed §1.367(d)-1(f)(4)(iv) provided rules regarding a qualified domestic person’s adjusted basis in the intangible property it receives in a repatriation. The proposed regulations described how these rules were intended to achieve an appropriate result regarding a qualified domestic person’s adjusted basis in intangible property upon a repatriation, but that general rules regarding adjusted basis under section 367(d) (and not in the context of a repatriation of intangible property to a qualified domestic person) would be addressed in future rulemaking. See 88 FR 27819, 27824, and 27825.

One comment described how existing uncertainty regarding the treatment of adjusted basis of intangible property subject to section 367(d) may be implicated when that intangible property is repatriated. The comment noted that any solution would necessarily represent a broad solution to existing section 367(d) issues, instead of one limited to the proposed regulations, so the comment recommended the Treasury Department and the IRS address this issue in future rulemaking. Another comment suggested that, when a transferee foreign corporation incurs expenditures with respect to repatriated intangible property after the initial outbound transfer, proposed §1.367(d)-1(f)(4)(iv) should be modified to allow a qualified domestic person’s adjusted basis in repatriated intangible property to reflect those expenditures, reduced by any attributable amortization allowed or allowable to the transferee foreign corporation.

As noted in the proposed regulations, proposed §1.367(d)-1(f)(4)(iv) operated “in a manner intended to reach an appropriate result regarding a qualified domestic person’s basis in repatriated intangible property” until future rulemaking is issued that can address general basis rules under section 367(d). See id. The Treasury Department and the IRS, in agreement with the first comment, continue to believe that any resolution of these issues necessarily implicates broader issues under section 367(d) and, as such, is beyond the scope of this rulemaking. Proposed §1.367(d)-1(f)(4)(iv) is therefore finalized without change, though the Treasury Department and the IRS may revisit these issues as part of future rulemaking.

The proposed regulations provided that the deemed annual payment under section 367(d) by the transferee foreign corporation is treated as an allowable deduction that must be allocated and apportioned to the transferee foreign corporation’s classes of gross income in accordance with §§1.882-4(b)(1), 1.954-1(c), and 1.960-1(c) and (d) (as applicable). See proposed §1.367(d)-1(c)(2)(ii) and (e)(2)(ii). These provisions, described as “minor clarifications” in the preamble to the proposed regulations, clarified “that the allowable deduction is allocated and apportioned under the provisions cited in the previous sentence potentially to any class (or classes) of gross income (as appropriate) rather than solely to gross income subject to subpart F in all circumstances.” See 88 FR 27819, 27822, and 27825.

One comment suggested that the proposed regulations were unclear as to whether the allowable deduction described in proposed §1.367(d)-1(c)(2)(ii) and (e)(2)(ii) was limited to the listed provisions (§§1.882-4(b)(1), 1.954-1(c), and 1.960-1(c) and (d)) or whether such deduction was more generally available (for example, as a deduction under section 162). The comment posited that the latter approach was more appropriate and requested that the final regulations clarify that the allowable deduction may be allowed as a deduction under section 162. In support, the comment described how, in the case of certain transfers of intangible property to a U.S. person that is not a qualified domestic person, “excessive U.S. taxation” could result if the allowable deduction were limited to the listed provisions, which are provisions relevant to determinations with respect to foreign corporations.

The final regulations do not adopt this comment. The proposed regulations terminated the continued application of section 367(d) upon certain, rather than all, subsequent transfers of intangible property to a U.S. person (that is, upon a repatriation to a qualified domestic person if certain reporting requirements are met). See 88 FR 27819,27821, and 27822. The comment, if adopted, would effectively terminate the continued application of section 367(d) by, for example, providing a deduction under section 162 corresponding to each annual inclusion under section 367(d). Indeed, as the proposed regulations explained, the solution contained in the proposed regulations was premised, in relevant part, on the fact that “the deemed (substituted) transferee foreign corporation is not allowed a deduction that could reduce taxable income, even though that deemed transferee foreign corporation is the U.S. transferor or a related U.S. person.” See id. Thus, a fundamental premise underlying the proposed regulations, and the existing section 367(d) regulations, is that an allowable deduction, instead of being generally available, is limited to the provisions listed in the proposed regulations (§§1.882-4(b)(1), 1.954-1(c), and 1.960-1(c) and (d)). To adopt the comment’s suggestion would therefore be inconsistent with the proposed regulations and section 367(d) generally.

The comment also suggested that, when a subsequent transfer of intangible property results in treating the same entity as U.S. transferor and transferee foreign corporation under the section 367(d) regulations, the continued application of section 367(d) should terminate by reason of that convergence. As support, the comment cited to a case and guidance involving circumstances in which a taxpayer acquired its own debt. The Treasury Department and the IRS do not agree with this suggestion for the reasons described in the preceding paragraph, and references to cases or guidance involving a taxpayer acquiring its own debt are not instructive for, nor consistent with, the statutory and regulatory framework of section 367(d). Section 367(d) relies upon a statutory fiction that imposes a notional regime with a prescribed payor and payee, and the regulations describe cases in which a successor succeeds to the notional payment on both sides of the construct. For example, §1.367(d)-1T(e)(1) provides that a related person can succeed an initial U.S. transferor for purposes of including income under section 367(d), and §1.367(d)-1T(f)(3) provides that a related person can succeed to the payor side of the deemed payment fiction. Where intangible property is returned to the original U.S. transferor, that U.S. transferor is also the successor transferee under the statutory and regulatory framework of section 367(d), and, under the express language of §1.367(d)-1T(f)(3), the annual inclusion under section 367(d) continues. This is precisely the issue the proposed regulations were intended to address, and new regulations providing a rule for terminating an annual inclusion stream would have been largely unnecessary if the deemed payment construct collapsed automatically in such cases. Instead, this Treasury Decision provides the exclusive means by which the continued application of section 367(d) may be terminated by reason of a subsequent transfer of intangible property to a U.S. person.

One comment suggested changes to the proposed regulations to accommodate repatriations preceded by certain transfers of intangible property subject to section 367(d) between related foreign corporations. To illustrate this suggestion, the comment posited an example pursuant to which a repatriation was first preceded by a distribution under section 311 of the intangible property (first section 311 distribution) from one CFC (original transferee foreign corporation, or TFC) to another CFC (successor TFC). The successor TFC then distributes the intangible property under section 311 to a qualified domestic person (second 311 distribution) in a transaction with respect to which the successor TFC did not recognize gain or loss (under the theory that successor TFC’s adjusted basis in the intangible property equaled the intangible property’s fair market value).

On those modified facts, the comment described how the original TFC could recognize gain subject to U.S. taxation by reason of the first section 311 distribution (not under section 367(d), but rather under, for example, section 951A(a) as to a United States shareholder), and the qualified domestic person could recognize that same amount of gain upon the repatriation after the second 311 distribution under the proposed regulations (by reason of the application of the gain recognition rule in proposed §1.367(d)-1(f)(4)(ii)(B), under which gain is determined by reference to the U.S. transferor’s former adjusted basis in the property). And, because the successor TFC is the TFC at the time of the repatriation (that is, at the time of the second section 311 distribution), the required adjustments described in proposed §1.367(d)-1(f)(2) would apply by reference to the successor TFC, which did not recognize gain or loss on the repatriation under the theory described above, rather than to the original TFC, which recognized gain on the first section 311 distribution. To address this concern, the comment suggested modifying the proposed regulations in a manner that would effectively negate a prior transfer that was subject to tax under a separate regime (for example, section 951A).

The example provided in the comment highlights significant potential interactions between the operation of section 367(d) and other generally operative provisions in the Code and regulations. For example, §1.367(d)-1T(f)(3) explicitly provides that the ongoing annual royalty construct is unaffected by the taxable distribution of intangible property from the original TFC to the successor TFC in the first section 311 distribution, and §1.367(d)-1T(d)(1) and (f)(1) are clear that the amount of income recognized by the U.S. transferor upon a later indirect or direct disposition of intangible property to an unrelated person is determined using the transferor’s original basis in the property. However, the distribution of the intangible property from the original TFC to the successor TFC described in the comment’s example might result in taxable gain to the original TFC that would be treated as tested income under section 951A, notwithstanding the lack of an acceleration of income under section 367(d). Similarly, the successor TFC might take the intangible property with a fair market value basis under section 301(d), even though that increased basis would not be available to reduce gain under section 367(d). Essentially, the example posited in the comment highlights that it may be possible to recognize income under both sections 951A and 367(d) with respect to the same property in some fact patterns where separate transactions occur in separate foreign corporations, notwithstanding that that result would not occur in cases where the property is not transferred among multiple foreign corporations. Coordinating potential disparities between income recognition under section 367(d) as compared to other generally applicable provisions of the Code, and potential disparities in tax basis for purposes of section 367(d) as compared to adjusted basis for other purposes, is beyond the scope of this rulemaking. The request for additional guidance addressing multiple related transfers, therefore, is not adopted.

As a condition for terminating the application of section 367(d) with respect to repatriated intangible property, proposed §1.367(d)-1(f)(4)(i)(B) would have required a U.S. transferor to provide the information described in proposed §1.6038B-1(d)(2)(iv). If a U.S. transferor failed to provide that information, the repatriation was subject to proposed §1.367(d)-1(f)(3) such that the section 367(d) regulations, including the requirement to take an annual inclusion into account over the useful life of the intangible property, continued to apply. However, a U.S. transferor was eligible for relief under the proposed regulations if proposed §1.367(d)-1(f)(4)(i)(B)(2) would have applied to the subsequent transfer of intangible property but for the fact that the required information was not provided and the U.S. transferor, upon becoming aware of the failure, promptly provided the required information, explained its failure to comply, and met certain other requirements (if applicable).

One comment requested clarifications of the reporting and relief provisions. First, the comment requested that the final regulations clarify whether relief for a failure to comply is, in relevant part, also conditioned on the U.S. transferor timely filing one or more amended returns for the taxable year in which the subsequent transfer occurred and succeeding years, and, if the U.S. transferor is under examination when an amended return is filed, providing a copy of the amended return(s) to the IRS personnel conducting the examination. The Treasury Department and the IRS adopt this comment by revising of §1.367(d)-1(f)(5) to clarify that the relief for a failure to comply is conditioned upon the requirements listed in the previous sentence (if applicable).

The comment also requested that the Treasury Department and the IRS consider prescribing in the future a particular form for filing the required information under proposed §1.367(d)-1(f)(5). The Treasury Department and the IRS will consider prescribing a particular form as part of future improvements to reporting with respect to section 367(d) generally. However, to provide taxpayers with additional guidance on the manner for providing a U.S. transferor’s explanation for its failure to comply to the IRS, the final regulations provide an eFax number for such purpose (and, if a taxable year of the U.S. transferor is under examination, that information should instead be provided to the IRS personnel conducting the examination).

Finally, the comment suggested clarifications or modifications to the requirements in proposed §1.367(d)-1(f)(5) that a U.S. transferor “promptly” address its failure to file and to the way the U.S. transferor provides the remedial information (that is, to the Director of Field Operations, Cross Border Activities Practice Area of Large Business & International, or any successor to that role). The comment suggested that “promptly” does not provide sufficient guidance to taxpayers (the comment requested a prescribed period) and the comment asserted that it is unusual for regulations to require a taxpayer to provide information directly to a specified official within the IRS. The final regulations do not adopt these suggestions. The Treasury Department and the IRS believe that “promptly” requiring the U.S. transferor to address its failure to comply, rather than providing a specific period, allows flexibility so that the relief may apply as appropriate to a taxpayer’s particular facts and circumstances. Additionally, proposed §1.367(d)-1(f)(5) is modeled on similar relief provisions in other contexts (for example, §§1.367(a)-8(p) and 1.721(c)-6(f)).

The Treasury Department and the IRS clarify proposed §1.367(d)-1(f)(5) by striking the last clause that appeared in the second sentence. That sentence described the consequences of a failure to comply, namely the continued application of the annual inclusion stream pursuant to proposed §1.367(d)-1(f)(3) and application of the gain recognition rule of proposed §1.367(d)-1(f)(4)(i)(A). If the failure to comply is remedied, the rules of the proposed regulations are treated as satisfied as of the date of the repatriation (so, the repatriation terminates the continued application of section 367(d) and the U.S. transferor, if applicable, would take a partial annual inclusion into account pursuant to proposed §1.367(d)-1(f)(4)(i)(B)(1)).

Proposed §1.367(d)-1(f)(6)(ii)(C) (Example 3) illustrated the determination of a qualified domestic person’s adjusted basis in intangible property under the proposed regulations. In that example, TFC transferred the intangible property to USS (a qualified domestic person as defined in proposed §1.367(d)-1(f)(4)(iii)) in an exchange described in section 351(b) pursuant to which TFC recognized $50x of gain and USP recognized $50x of gain under proposed §1.367(d)-1(f)(4)(i)(A). The analysis under proposed §1.367(d)-1(f)(6)(ii)(C)(2) was, and remains in this Treasury decision, limited to the determination of USS’s adjusted basis in the intangible property.

One comment requested, in relevant part, that the final regulations clarify that TFC’s earnings and profits and gross income arising by reason of the repatriation are reduced by the amount of gain recognized by USP under proposed §1.367(d)-1(f)(4)(i)(A) ($50x). The Treasury and the IRS adopt the comment by clarifying in the facts of the example that, under §1.367(d)-1(f)(2)(i), TFC will reduce its earnings and profits and gross income by $50x, the amount arising by reason of the repatriation and the amount of gain recognized by USP under §1.367(d)-1(f)(4)(i)(A).

Proposed §1.904-4(f)(2)(vi)(D)(4) described the application of the principles of section 367(d) to subsequent transfers of intangible property in determining adjustments to the amount of gross income attributable to a foreign branch under §1.904-4(f)(2)(vi)(D). Specifically, the proposed regulations would have provided that each transfer to which §1.904-4(f)(2)(vi)(D) applies is considered independently from any other preceding or subsequent transfer of the intangible property, with the result that the subsequent transfer rules in the regulations under section 367(d), including the rules for repatriations provided in the proposed regulations, do not apply in determining gross income attributable to a foreign branch under §1.904-4(f)(2)(vi)(D). See 88 FR 27819, 27825, and 27826.

One comment requested that the Treasury Department and the IRS finalize the provisions of the proposed regulations without finalizing proposed §1.904-4(f)(2)(vi)(D)(4). The comment suggested that such an approach could allow for further consideration of ways to simplify the application of section 367(d) principles in §1.904-4(f)(2)(vi)(D). The comment suggested that instead of finalizing proposed §1.904-4(f)(2)(vi)(D)(4), that provision could be adopted as a temporary regulation, or alternatively, this preamble could state that, until the implementation of final regulations addressing this issue, the Treasury Department and the IRS intend that rules related to section 367(d) and subsequent transfer will not apply for purposes of section 904(d).

A broader reconsideration of the application of section 367(d) principles in §1.904-4(f)(2)(vi)(D) is beyond the scope of these final regulations. The Treasury Department and the IRS believe it is necessary to finalize proposed §1.904-4(f)(2)(vi)(D)(4) to ensure the proper application of the foreign branch income rules under §1.904-4(f)(2)(vi)(D) as those rules currently stand. This is because, as explained in the preamble to the proposed regulations, while §1.904-4(f)(2)(vi)(D) relies on the principles of section 367(d) to determine the appropriate amount of gross income that is attributable to a foreign branch, the purposes of section 367(d) and §1.904-4(f)(2)(vi)(D) are different. See 88 FR 27819, 27825 (providing that, with respect to §1.904-4(f)(2)(vi)(D), “[i]f there are multiple transfers of an item of intangible property over time, each transfer must be separately evaluated and could result in differing amounts of deemed annual payments depending on any interim changes in the value of the intangible property between successive transfers...these proposed regulations provide that each successive transfer to which §1.904-4(f)(2)(vi)(D) applies is considered independently from any other preceding or subsequent transfers.”). Accordingly, the final regulations do not adopt this comment and proposed §1.904-4(f)(2)(vi)(D) is finalized without change.

The proposed regulations were generally proposed to apply to subsequent dispositions of intangible property occurring on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register. See proposed §§1.367(d)-1(j)(2), 1.904-4(q)(3), and 1.6038B-1(g). Comments recommended that the proposed regulations apply retroactively.

The Treasury Department and the IRS generally consider several factors when evaluating whether a rule should apply retroactively on an elective basis. For example, and as relevant to the proposed regulations, retroactive application may be more compelling where the regulations are issued with respect to new legislation, or where retroactive application is necessary to achieve certain policy objectives. The Treasury Department and the IRS also evaluate the additional administrative burden likely to result from retroactive application. Finally, where the regulations represent a change in existing regulations, consideration is given to whether retroactive application could advantage certain taxpayers over similarly situated taxpayers, based on whether the relevant taxable year remains open for the taxpayer to amend their return to take advantage of the change. The Treasury Department and the IRS have determined that, on balance, these factors, though not representing an exhaustive list of factors, weigh against permitting the retroactive application of the final regulations and therefore do not adopt these comments.

Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required.

The collection of information contained in these regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545–0026. The collection of information in these final regulations is in §1.6038B-1(d)(2)(iv). This information is necessary to ensure that proposed §1.367(d)-1(f)(4) is appropriately applied to the subsequent transfer. The collection of information is required to comply with section 367(d). The likely respondents are domestic corporations. Burdens associated with these requirements will be reflected in the burden for Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation.

Estimated total annual reporting burden is 1,601 hours.

Estimated average annual burden per respondent is 2.4 hours.

Estimated number of respondents is 667.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget. Books or records relating to a collection of information must be retained if their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and tax return information are confidential, as required by section 6103.

Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that these final regulations will not have a significant economic impact on a substantial number of small entities.

The Treasury Department and the IRS do not have data readily available to assess the number of small entities potentially affected by the final regulations. However, entities potentially affected by these proposed regulations are generally not small entities, because of the resources and investment necessary to develop intangible property and, once so developed, transfer the intangible property to a foreign corporation. Therefore, the Treasury Department and the IRS have determined that there will not be a substantial number of domestic small entities affected by the final regulations. Consequently, the Treasury Department and the IRS certify that the final regulations will not have a significant economic impact on a substantial number of small entities.

Pursuant to section 7805(f) of the Code, the proposed regulations (REG-113839-22) preceding these final regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business, and no comments were received.

Section 202 of the Unfunded Mandates Reform Act of 1995 requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or Tribal government, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. These final regulations do not include any Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector in excess of that threshold.

Executive Order 13132 (entitled “Federalism”) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on State and local governments, and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. These final regulations do not have federalism implications and do not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive order.

The purpose of this revenue procedure is to provide guidelines and general requirements for the development, printing, and approval of the 2024 substitute tax forms. Approval will be based on these guidelines. After review and approval, submitted forms will be accepted as substitutes for official IRS forms.

Certain unique specialized forms require the use of other publications that supplement this publication. See Part 4.

The IRS accepts quality substitute tax forms that are consistent with the official forms and have no adverse impact on processing. The IRS Substitute Forms Program (the Program) administers the formal acceptance and processing of these forms nationwide. While this Program deals with paper documents, it also reviews for approval other processing and filing forms used in electronic filing.

Only those substitute forms that fully comply with these requirements are acceptable. This revenue procedure is updated as required to reflect pertinent tax year form changes and to meet processing and/or legislative requirements.

The following types of forms are covered by this revenue procedure.

The following types of forms are not covered by this revenue procedure. Refer to the publication for questions.

The following information is not covered by this revenue procedure.

Send your substitute forms for approval to the following offices. Do not send forms with taxpayer data.

The following changes have been made to this year’s revenue procedure.

A tax form (or related schedule) that differs in any way from the official version and is intended to replace the form that is printed and distributed by the IRS. This term also covers those approved substitute forms exhibited in this revenue procedure.

A form produced using conventional printing processes or a printed form which has been reproduced by photocopying or a similar process.

A printed form that has marginal perforations for use with automated and high-speed printing equipment.

A preprinted form in which the taxpayer’s tax entry information has been inserted by a computer, a computer printer, or other computer-type equipment.

A tax return or form that is entirely designed and printed using a computer printer on plain white paper. This return or form must conform to the physical layout of the corresponding IRS form, although the typeface may differ. The text should match the text on the officially printed form as closely as possible. Condensed text and abbreviations will be considered on a case-by-case basis.

Exception. All jurats (perjury statements) must be reproduced verbatim.

A preprinted reproduced form in which the taxpayer’s tax entry information is entered by an individual using a pen, a pencil, or other nonautomated equipment.

Parts of a printed tax form that are not tax amount entries or required text. Examples of graphics are line numbers, captions, shadings, special indicators, borders, rules, and strokes created by typesetting, photographics, photocomposition, etc.

A legible photocopy or an exact replica of an original form.

A document providing detailed information to support a line entry on an official or approved substitute form and filed with (attached to) a tax return.

Note. A supporting statement is not a tax form and does not take the place of an official form.

The following specific terms are used throughout this revenue procedure in reference to all substitute forms: format, sequence, line reference, item caption, and data entry field.

The overall physical arrangement and general layout of a substitute form.

Sequence is an integral part of the total format requirement. The substitute form should show the same numeric and logical placement order of data as shown on the official form.

The line numbers, letters, or alphanumerics used to identify each captioned line on an official form. These line references are printed to the immediate left of each caption and/or data entry field.

The text on each line of a form, which identifies the data required.

Designated areas for the entry of data such as dollar amounts, quantities, responses, and checkboxes.

A draft version of a new or revised form may be posted to the IRS website (https://www.irs.gov/draftforms) for information purposes. Substitute forms may be submitted based on these advance drafts, but any submitter that receives forms approval based on these early drafts is responsible for monitoring and revising forms to reflect any revisions in the final forms provided by the IRS.

Generally, approval could be in writing or assumed after 20 business days from our receipt for forms that have not been substantially changed by the IRS. This does not apply to newly created or substantially revised IRS forms. However, the Program reserves the right to notify vendors of any inaccuracies even after 20 business days have lapsed.

The NACTP is a nonprofit association that represents tax processing software and hardware developers, electronic filing processors, tax form publishers, tax processing service bureaus, and payroll processors. The association promotes standards in tax processing to advance efficient and effective tax filing. For more information, go to https://www.nactp.org.

Any person or company who uses substitute forms and makes all or part of the changes specified in this revenue procedure agrees to the following stipulations.

The Program will email confirmation of receipt of your forms submission, if possible. Even if you do not receive emailed confirmation of receipt, you will receive an emailed “submission receipt,” which will provide feedback on your submission. If the Program anticipates problems in completing the review of your submission within the 20-business-day period, the Program will send an interim email notifying you of the extended period for review.

Once the substitute forms have been approved by the Program, you can release them after the final versions of the forms have been issued by the IRS. Before releasing the forms, you are responsible for updating forms approved as draft and for making form changes requested.

The policy has the following stipulations.

If you produce any substitute tax forms that fully comply or follow the changes specifically outlined by the Program, then you can generate your own substitute forms without further approval. Also, if your substitutes have received approval in the past, and there are no substantial formatting or text changes for the tax year, then changes can be made without additional approval. If your changes are more extensive, you must get IRS approval before using substitute forms. More extensive changes include different font style; decreasing or increasing the font size of caption titles; adjusting or omitting format/layout elements; changing page orientation; and repositioning line items, tables, and legends.

The Program accepts submissions of substitute forms for review and approval via email. The email address is substituteforms@irs.gov. Include the term “PDF Submissions” on the subject line.

Follow these guidelines.

If the guidelines are not followed, you may need to resubmit.

Emailing PDF submissions will not expedite review and approval. Submitting your substitute forms package via email is the preferred and suggested method for submitting forms for review. If, for some reason, you are not able to email your submission(s), you can mail your submission(s) to:

Internal Revenue Service

Attn: Substitute Forms Program

SE:W:CAR:MP:P:TP:TP

ATSC

4800 Buford Highway

Mail Stop: 061-N

Chamblee, GA 30341

Follow these basic guidelines for expediting the process.

Some schedules are considered to be an integral part of a complete tax return and must be submitted as part of the form. Other schedules may be submitted separately and do not need to be included with the tax form.

Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, is an example of this situation. For the Form 706 to be considered for approval, all schedules that affect or are applicable to any election or position taken by the filer, as well as all applicable schedules that affect the tax, must be submitted.

Schedules C, D, and E for Form 1040, U.S. Individual Income Tax Return, or Form 1040-SR, U.S. Tax Return for Seniors, are examples of schedules that can be submitted separately. Although printed by the IRS as a supplement to Form 1040 or 1040-SR, these schedules are not required to be submitted for approval with Form 1040 or 1040-SR. These schedules may be separated from Form 1040 or 1040-SR and submitted as substitute forms.

The IRS is continuing a program to identify and contact tax return preparers, forms developers, and software publishers who use or distribute unapproved forms that do not conform to this revenue procedure. The use of unapproved forms hinders the processing of the returns.

There are methods of reproducing IRS printed tax forms suitable for use as substitutes without prior approval.

All payment vouchers (Forms 940-V, 941-V, 943-V, 944-V, 945-V, 1040-ES, 1040-V, 1041-V, and 2290-V) must be reproduced in conjunction with their forms. Substitute vouchers must be the same size as the officially printed vouchers. Vouchers that are prepared for printing on a laser printer may include a scan line.

Code Number for Forms:

Type Number for:

The voucher size must be exactly 8.0" x 3.25" (Forms 1040-ES and 1041-ES must be 7.625" x 3.0"). The document scan line must be vertically positioned 0.25 inch from the bottom of the scan line to the bottom of the voucher. The last character on the right of the scan line must be placed 3.5 inches from the right leading edge of the document. The minimum required horizontal clear space between characters is 0.014 inch. The line to be scanned must have a clear band 0.25 inch in height from top to bottom of the scan line, and from border to border of the document. “Clear band” means no printing except for dropout ink.

Vouchers must be imaged in black ink using OCR A, OCR B, or Courier 10. These fonts may not be mixed in the scan line. The horizontal character pitch is 10 CPI. The preferred paper weight is 20 to 24 pound OCR bond.

Certain vouchers may be reproduced for use in the IRS lockbox system. These include the 1040-V, 1040-ES, 1041-V, 94X series, and 2290 vouchers. Software developers must follow these specific guidelines to produce scannable vouchers strictly for lockbox purposes. Also see Exhibit A.

Note. All software developers must ensure that their software uses OCR A font so taxpayers will be able to print the vouchers in the correct font.

Follow these line specifications for entering taxpayer data in the lockbox vouchers.

Send an approval sheet with each form type for IRS signature to Jason Lane at Jason.L.Lane@irs.gov. You should include in the email an example of each type of voucher the site will be testing. Note. Do not mail any test vouchers to Jason Lane.

You are required to send 25 voucher samples of each form in PDF format by December 6, 2024. You should email the test vouchers to raul.t.mariduena@jpmorgan.com. You can also print the vouchers and send them to his mailing address at:

JP Morgan Chase

Attn: Raul Mariduena

830 Tyvola Road, Suite 114

Charlotte, NC 28217

For further information, contact Jason Lane at Jason.L.Lane@irs.gov, or at 559-550-8740 (not toll free).

You cannot, without prior IRS approval, change any IRS tax form or use your own (nonapproved) versions including graphics, unless specifically permitted by this revenue procedure. See Sections 2.5.7 through 2.5.11.

You cannot adjust any of the graphics on Form 1040 or 1040-SR (except in those areas specified in Part 5 of this revenue procedure) without prior approval from the Program.

You cannot rearrange or redistribute data entry fields, and/or allow data entry fields to flow from one page onto the next (that is, each page of a substitute form must contain the exact number of data entry fields as there are on the official IRS form). The order of information on the substitute form must be identical to the IRS version of the form. Publications for specific substitute forms will state allowances for those respective forms.

Note. The 20-business-day turnaround policy may not apply to extensive changes.

Preparers who submit substitute privately designed, privately printed, computer-generated, or computer-prepared tax forms must develop these substitutes using the guidelines established in this part. These forms, unless there is an exception outlined by this revenue procedure, must be approved by the IRS before being filed.

The IRS cannot grant final approval of your substitute form until the official form has been published. However, the IRS posts advance draft forms on its website at https://www.irs.gov/draftforms.

Submission of proposed substitutes of these advance draft forms is encouraged, and conditional approval will be granted based solely on these early drafts. These advance drafts are subject to significant change before forms are finalized. If these advance drafts are used as the basis for your substitute forms, you will be responsible for subsequently updating your final forms to agree with the final official version. These revisions need not be resubmitted for further approval.

Note. Approval of forms based on advance drafts will not be granted after the final version of an official form is published.

Follow these general guidelines when submitting substitute forms for approval.

Because only the Program is authorized to approve substitute forms, unnecessary delays may occur if forms are sent to the wrong office. You may receive an interim letter about the delay. The Program may then coordinate the response with the originator responsible for revising that particular form. Such coordination may include allowing the originator to officially approve the form. No IRS office is authorized to allow deviations from this revenue procedure.

The IRS does not review or approve the logic of specific software programs, nor does the IRS confirm the calculations on the forms produced by these programs. The accuracy of the program remains the responsibility of the software package developer, distributor, or user.

The Program is primarily concerned with the pre-filing quality review of the final forms that are expected to be processed by IRS field offices. For this purpose, you should submit forms without including any taxpayer information such as names, addresses, monetary amounts, etc.

If the software used is programmed to produce copies with populated fields, then you must use dummy information. This will allow the Program to review and provide feedback or approval. Vendors should use “0” for all number values and “X” for any information that requires alpha characters.

Proposed substitutes, which are required to be submitted per this revenue procedure, should be sent as much in advance of the filing period as possible. This is to allow adequate time for analysis and response.

When submitting sample substitutes, you should include an accompanying statement that lists each form number and its changes from the official form (position, arrangement, appearance, line numbers, additions, deletions, etc.). With each of the items, you should include a detailed reason for the change.

When requesting approval, include a checksheet. Checksheets expedite the approval process. The checksheet may look like the example in Exhibit B displayed in the back of this revenue procedure or may be one of your own design. Include your email address on the checksheet.

The Program will email the checksheet or an approval letter to the originator, unless:

Notice of approval may impose qualifications before using the substitutes. Notices of unapproved forms may specify the changes required for approval and require resubmission of the form(s) in question. When appropriate, you will be contacted by telephone.

Most signature tax returns and many of their schedules and related forms have the tax year printed in the upper right corner. Approvals for these annual forms are usually good for 1 calendar year (January through December of the year of filing). Quarterly tax forms in the 94X series and Form 720 require approval for any quarter in which the form has been revised.

Because changes are usually made to an annual form every year, each new filing season generally requires a new submission of a substitute form. Very rarely is updating the preprinted year the only change made to an annual form. However, if no significant content, formatting, or layout changes were made to a tax form, then review and approval received for the prior tax year can be carried over into the current tax year.

Limited changes approved for one tax year may be allowed for the same form in the following tax year. Examples are the use of abbreviated words, revised form spacing, compressed text lines, shortened captions, etc., which do not change the integrity of lines or text on the official forms.

If the vendor or filer makes substantial changes to the form, new substitutes must be submitted for approval. If the vendor or filer makes only minor editorial changes to the form, or makes any changes that mirror changes the IRS makes to the form’s official version, the new substitute does not need to be submitted for approval. It is the responsibility of each vendor who has been granted permission to produce substitute forms to monitor and revise forms to mirror any revisions to the official forms made by the IRS. If there are any questions, contact the Program.

If you received approval for a specific change on a form last year, you may make the same change this year if the item is still present on the official form.

Exception. Forms with temporary, limited, or interim approvals (or with approvals that state a change is not allowed in any other tax year) are subject to review in subsequent years.

Generally, you must send us one copy of each form being submitted for approval. However, if you are producing forms for different computer platforms (for example, Microsoft vs. Apple), different tax preparation software (for example, TurboTax® vs. TaxSlayer®), or different types of printers (for example, inkjet vs. impact), and these forms differ significantly in appearance, submit one copy for each type of platform, tax preparation software, or printer.

Following receipt of an initial approval for a substitute forms package or a software output program to print substitute forms, it is the responsibility of the originator (designer or distributor) to provide client firms or individuals with forms that meet the IRS’s requirements for continuing acceptability. Examples of this responsibility include:

The Program will assign a unique source code to each firm that submits substitute forms for approval. This source code will be a permanent identifier that must be used on every submission by a particular firm.

The source code consists of three alpha characters and should generally be printed under or to the left of the “Paperwork Reduction Act” statement. Vendors must ensure that the source code is not printed too close to or within the left or bottom 0.5-inch margin to avoid the source code from being cut off during printing.

There are legal requirements of the Paperwork Reduction Act of 1995 (the Act). Public Law 104-13 requires the following.

This information must be provided to every user of official or substitute IRS forms or instructions.

On forms that have been assigned OMB numbers:

You must inform the users of your substitute forms of the IRS use and collection requirements stated in the instructions for official IRS forms.

Note. If no IRS instructions are provided to users of your forms, the exact text of the Paperwork Reduction Act Notice (or Disclosure, Privacy Act, and Paperwork Reduction Act Notice) must be furnished separately or on the form.

The OMB number and the Paperwork Reduction Act Notice, or references to it, may be found printed on an official form (or its instructions). The number and the notice are included on the official paper format and in other formats produced by the IRS.

The official form is the standard. Because a substitute form is a variation from the official form, you should know the requirements of the official form for the year of use before you modify it to meet your needs. To obtain the most frequently used tax forms, go to https://www.irs.gov/forms.

Each form must follow the design of the official form as to format arrangement, item caption, line numbers, line references, and sequence.

Generally, state tax information must not appear on the federal tax return, associated form, or schedule that is filed with the IRS. Exceptions occur when amounts are claimed on, or required by, the federal return (for example, state and local income taxes on Schedule A (Form 1040)).

Many individual income tax forms have a required “attachment sequence number” located just below the year designation in the upper right corner of the form. The IRS uses this number to indicate the order in which forms are to be attached to the tax return for processing. Some of the attachment sequence numbers may change from year to year.

The following apply to computer-prepared forms.

When developing software or forms for use by others, inform your customers/clients that the order in which the forms are arranged may affect the processing of the package. A return must be arranged in the order indicated below.

Supporting statements should then follow in the same sequence as the forms they support. Additional information required should be attached last.

In this way, the forms are received in the order in which they must be processed. If you do not send returns to the IRS in order, processing may be delayed.

On Forms 1040, 1040-SR, and 1120, and any other applicable tax forms, the “Paid Preparer Use Only” area may not be rearranged or relocated. You may, however, add three extra lines to the paid preparer’s address area, and remove the horizontal rules in that area without prior approval.

Some reasons that substitute form submissions may require changes include the following.

The paper must be:

There are several kinds of paper prohibited for substitute forms. These are:

Example. A set containing three plies would be constructed as follows: ply one (coated back), “Federal Return, File with IRS”; ply two (coated front and back), “Taxpayer’s copy”; and ply three (coated front), “Preparer’s copy.”

The file designation, “Federal Return, File with IRS” for ply one, must be printed in the bottom right margin (just below the last line of the form) in 12-point boldface type.

It is not mandatory, but recommended, that the file designation “Federal Return, File with IRS” be printed in a contrasting ink for visual emphasis.

It is preferred that the color and opacity of paper substantially duplicate that of the original form. This means that your substitute must be printed in black ink and may be on white paper or on the colored paper the IRS form is printed on. Form 1040 or 1040-SR substitute reproductions may be in black ink without the colored shading. The only exception to this rule is Form 1041-ES, which should be printed with a PMS 100 yellow shading in the color-screened area. This is necessary to assist us in expeditiously separating this form from the very similar Form 1040-ES.

Substitute or reproduced forms and computer-prepared/-generated substitutes may be the same size as the official form or they may be the standard commercial size (8.5" x 11"). The thickness of the stock cannot be less than 0.003 inch.

The private printing of all substitute tax forms must be by conventional printing processes, photocopying, computer graphics, or similar reproduction processes.

All forms must have a high standard of legibility as to printing, reproduction, and fill-in matter. Entries of taxpayer data may be no smaller than 8 points. The IRS reserves the right to reject those with poor legibility. The ink and printing method used must ensure that no part of a form (including text, graphics, data entries, etc.) develops “smears” or similar quality deterioration. This standard must be followed for any subsequent copies or reproductions made from an approved master substitute form, either during preparation or during IRS processing.

Many federal tax forms are printed using Helvetica as the basic type font. It is preferred that you use this type font when composing substitute forms.

Substitute forms should be printed using a 6 lines/inch vertical print option. They should also be printed horizontally in 10-pitch pica (that is, 10 print characters per inch) or 12-pitch elite (that is, 12 print positions per inch).

The image size of a printed substitute form should be as close as possible to that of the official form. You may omit any text on both computer-prepared and computer-generated forms that is solely instructional.

To allow a large top margin for marginal printing and more lines per page, the title line(s) for all substitute forms (not including the form’s year designation and sequence number, when present) may be photographically reduced by 40% or reset as one line of type. When reset as one line, the type size may be no smaller than 14 points. You may omit “Department of the Treasury—Internal Revenue Service” and all references to instructions in the form’s title area.

When privately printing substitute tax forms, the GPO symbol and/or jacket number must be removed. In the same place using the same type size, print the EIN of the printer or designer, or the IRS-assigned source code. (Preferably, this last number should be printed in the lower left area of the first page of each form.) Also, remove the IRS catalog number (Cat. No.) and the recycle symbol if the substitute is not produced on recycled paper.

Substitute single-page forms should be reproduced the same as IRS single-page forms. Other forms or schedules should not be printed on the back or on blank portions of a single-page form. However, printing instructions on the back or on blank portions of a single-page form is acceptable.

The IRS does not undertake to approve or disapprove the specific equipment or process used in reproducing official forms. Photocopies of forms must be entirely legible and satisfy the conditions stated in this and other revenue procedures.

Reproductions of official forms and substitute forms that do not meet the requirements of this revenue procedure may not be filed instead of the official forms. Illegible photocopies are subject to being returned to the filer for resubmission of legible copies.

Generally, you may remove references to instructions. No prior approval is needed. However, in some instances, you may be requested to include references to instructions.

Exception. The words “For Paperwork Reduction Act Notice, see instructions” must be retained, or a similar statement indicating the location of the Notice must be provided on each form.

The format of a reproduced tax form when printed on the page must have margins on all sides at least as large as the margins on the official form. This allows room for IRS employees to make necessary entries on the form during processing.

Prior approval is not required for the marginal printing allowed when printed on an official form or on a photocopy of an official form.

To be acceptable for filing, a substitute form must print out in a format that will allow the filer to follow the same instructions that accompany official forms.The form must be legible, must be on the appropriately sized paper, and must include a jurat (perjury statement) where one appears on the published form.

The IRS has received returns produced by software packages with approved output where either the form heading was altered or the lines were spaced irregularly. This produces an illegible or unrecognizable return or a return with the wrong number of pages. While many of these problems are caused by individual printer differences, they may delay input of return data and, in some cases, generate correspondence to the taxpayer. Therefore, in the instructions to the purchasers of your product, both individual and professional, stress that their returns will be processed more efficiently if they are properly formatted. This includes:

If you are producing a software package that generates name and address data onto the tax return, do not, under any circumstances, program either the IRS preprinted check digits or a practitioner-derived name control to appear on any return prepared and filed with the IRS.

Whenever applicable:

The IRS publications listed below provide guidance for substitute tax forms not covered in this revenue procedure. These publications are available on the IRS website. Use the publication number listed below to search for the requested document.

Copies of tax forms and their instructions, publications, fillable forms, and prior year forms and publications may be found on the IRS website at https://www.irs.gov/forms.

Draft forms and instructions may be found at https://www.irs.gov/draftforms.

Other tax-related information may be found at https://www.irs.gov/.

For system requirements, contact the National Technical Information Service (NTIS) at https://www.ntis.gov. Prices are subject to change.

You can order IRS forms and other tax material at https://www.irs.gov/orderforms.

Tax return forms (such as Forms 1040, 1040-SR, and 1120) require a signature and establish tax liability. Computer-generated versions are acceptable under the following conditions.

The following are prohibited.

Certain changes (listed in Section 5.2) are permitted to the graphics of the form without prior approval, but these changes apply to only acceptable preprinted forms. Changes not requiring prior approval are good only for the annual filing period, which is the current tax year. Such changes are valid in subsequent years only if the official form does not change.

All changes not listed in Section 5.2 require approval from the IRS before the form can be filed.

You may make minor vertical and horizontal spacing adjustments to allow for computer or word-processing printing. This includes widening the amount columns or tax entry areas if the adjustments comply with other provisions stated in revenue procedures. No prior approval is needed for these changes.

Schedules 1–3 cannot be combined for filing purposes. For the client copy of the return, the numbered schedules may be printed two to a page (for example, Schedule 3 below Schedule 2, if both are completed as part of the return). If numbered schedules are combined on the client copy, it must include a statement that it is “Not for Filing.”

The horizontal rules and instructions within the name and address area may be removed and the entire area left blank. No line or instruction can remain in the area. The heavy-ruled border (when present) that outlines the name, address area, and SSN must not be removed, relocated, expanded, or contracted.

When the name and address area is left blank, the following format must be used when printing the taxpayer’s name and address.

When there is no in-care-of name line, the name and address will consist of only three lines (single filer) or four lines (joint filer).

Example of joint filer. Name and address (joint filer) with no in-care-of name line:

JOHN Q. DOE

MARY Q. DOE

000 ANYWHERE ST., APT. 000

ANYTOWN, STATE 00000

Example of in-care-of name line. Name and address (single filer) with in-care-of name line:

JOHN Q. DOE

C/O JOHN R. DOE

0000 SOMEWHERE AVE.

SAMETOWN, STATE 00000

The broken vertical lines separating the format arrangement of the SSN/EIN may be removed. When the vertical lines are removed, the SSN and EIN formats must be 000-00-0000 or 00-0000000, respectively.

No prior approval is needed for the following changes (for use with computer-prepared forms only). Specific line numbers in the following headings may have changed due to tax law changes.

The vertical lines separating columns (1) through (4) may be removed. The captions may be shortened to allow a one-line caption for each column.

Any other line with text that takes up two or more vertical lines may be compressed to one line by using contractions, etc., and by removing instructional references.

You may change the line caption to read “Tax” and computer print the words “Total includes tax from” and either “Form(s) 8814” or “Form 4972” or “962 election.” If both forms are used, print both form numbers. This specific line number may have changed.

It is not necessary to duplicate the color screening used on the official form. A substitute Form 1040 or 1040-SR may be printed in black and white only with no color screening.

No other changes to the Form 1040 or 1040-SR graphics are permitted without prior approval except for the removal of instructions and references to instructions.

Exhibit A is an acceptable format for Form 1040-ES.

The format of each substitute form or schedule must follow the format of the official form or schedule as to item captions, line references, line numbers, sequence, form arrangement and format, etc. Basically, try to make the form look like the official one, with readability and consistency being primary factors. You may use periods and/or other similar special characters to separate the various parts and sections of the form. Do not use alpha or numeric characters for these purposes. All line numbers and items must be printed even though an amount is not entered on the line.

When a line on an official form is designated by a number or a letter, that designation (reference code) must be used on a substitute form. The reference code must be printed to the left of the text of each line and immediately preceding the data entry field, even if no reference code precedes the data entry field on the official form. If an entry field contains multiple lines and shows the line references once on the left and right sides of the form, use the same number of line references on the substitute form.

In addition, the reference code that is immediately before the data field must either be followed by a period or enclosed in parentheses. There must also be at least two blank spaces between the period or the right parenthesis and the first digit of the data field. (See Section 6.1.4.)

A decimal point (a period) should be used for each money amount regardless of whether the amount is reported in dollars and cents or in whole dollars, or whether or not the vertical line that separates the dollars from the cents is present. The decimal points must be vertically aligned when possible.

When submitting a multi-page form, send all its pages in the same package. If you will not be producing certain pages, note that in your cover letter.

You may show the computer-prepared internal control numbers and identifying symbols on the substitute form if using such numbers or symbols is acceptable to the taxpayer and the taxpayer’s representative. Such information must not be printed in the top 0.5-inch clear area of any form or schedule requiring a signature. Except for the actual tax return form (Forms 1040, 1040-SR, 1120, 940, 941, etc.), you may print in the left vertical and bottom left margins. The bottom left margin you may use extends 3.5 inches from the left edge of the form. You may print internal control numbers in place of the removed IRS catalog number.

In the February 2009 Government Accountability Office (GAO) report, “Many Taxpayers Rely on Tax Software and IRS Needs to Assess Associated Risks” (GAO-09-297), the GAO recommended that the IRS require a software identification number on all individual returns to specifically identify the software package used to prepare each tax return. The IRS already has this capability for all e-filed returns. In addition, many tax preparation software firms already print an IRS-issued 3-letter source code on paper returns that are generated by their individual tax software. This source code was assigned when the firms were seeking substitute forms approval under this current publication.

In order to follow this GAO recommendation, the IRS will require that all tax preparation software firms include the 3-letter source code on all paper tax returns created by their individual tax preparation software. The many firms that currently have and display their source codes on paper returns generated from their software should continue to do so, and no change is necessary.

We have reviewed all software companies that passed Assurance Testing System (ATS) testing last filing season and have determined that some firms do not currently have source codes. To save you the burden of contacting us and for your convenience, we have assigned source codes to those firms.

You should program your source code to be placed in the bottom left-hand corner of page one of each paper form that will be generated by your individual tax return package. You do not need to apply for a new source code annually.

If you already use a 3-letter source code and we have issued you one in error, you are unsure if you were ever issued one, or you have other questions or concerns, you may contact Tax Forms and Publications Special Services Section at substituteforms@irs.gov.

The IRS requires tax preparation software firms that participate in the IRS Free File Program include the 3-letter FFF code on all paper Form 1040 returns created by their individual tax preparation software.

If you participate in the IRS Free File Program, you should program the 3-letter FFF code to be placed in the bottom left-hand corner of the first page of each paper Form 1040 that will be generated by your individual tax return package. The 3-letter FFF code and the 3-letter source code should be placed next to each other for consistency. If placing the 3-letter FFF code and the 3-letter source code next to each other is not possible, then above or below will be acceptable.

Example. The 3-letter FFF code and the 3-letter source code could be BCA-FFF or BCA FFF. A dash or a space is needed to separate the 3-letter FFF code and the 3-letter source code.

Descriptions for captions, lines, etc., appearing on the substitute forms may be limited to one print line by using abbreviations and contractions, and by omitting articles, prepositions, etc. However, sufficient keywords must be retained to permit ready identification of the caption, line, or item.

Explanatory detail and/or intermediate calculations for determining final line totals may be included on the substitute form. Preferably, such calculations should be submitted in the form of a supporting statement. If intermediate calculations are included on the substitute form, the line on which they appear may not be numbered or lettered. Intermediate calculations may not be printed in the right column. This column is reserved only for official numbered and lettered lines that correspond to the ones on the official form. Generally, you may choose the format for intermediate calculations or subtotals on supporting statements to be submitted.

Text on the official form, which is solely instructional (for example, “See instructions,” etc.), may generally be omitted from the substitute form.

Showing more than one form or schedule on the same printout page is prohibited. Both sides of the paper may be used for multi-page forms, but it is unacceptable to intermingle forms.

For instance, Schedule E can be printed on both sides of the paper because the official form is multi-page, with page 2 continued on the back. However, do not print Schedule E on the front page and Schedule SE on the back page, or Schedule A on the front and Form 8615 on the back, etc. Both pages of a substitute form must match the official form. The back page may be left blank if the back page of the official form contains only the instructions.

Identify all computer-prepared substitutes clearly. Print the form designation 0.5 inch from the top margin and 1.5 inches from the left margin. Print the title centered on the first line of print. Print the tax year and, where applicable, the sequence number on the same line 0.5 inch to 1 inch from the right margin. Include the taxpayer’s name and SSN on all forms and attachments. Also, print the OMB number as reflected on the official form.

Negative (or loss) amount entries should be enclosed in brackets or parentheses or include a minus sign. This assists in accurate computation and input of form data. The IRS preprints parentheses in negative data fields on many official forms. These parentheses should be retained or inserted on printouts of affected substitute forms.

Because of significant changes to improve processing, prior approval is now required for substitute Schedules K-1 that accompany Form 1041 (for estates and trusts), Form 1065 (for partnerships), or Form 1120-S (for S corporations). Substitute Schedules K-1 should be as close as possible to exact replicas of the official IRS schedules and follow the same process for submitting other substitute forms and schedules. Before releasing their substitute forms, software vendors are responsible for making any subsequent changes that have been made to the final official IRS forms after the draft forms have been posted.

Submit substitute Schedule K-1 forms, in PDF format, to scrips@irs.gov for scannability acceptance. Schedule K-1 forms that require testing do not need to be mailed to the Program. You must include information on the substitute forms that can be tested. This information should be dummy information. Use an “X” for alpha characters and “0” for numbers. The IRS will review and provide feedback of any changes needed so that your forms can be recognized correctly.

Include the 6-digit form ID code in the upper right of Schedules K-1 of Forms 1041, 1065, and 1120-S. Allow at least 0.25 inch of white space around the 6-digit code.

Schedules K-1 that accompany Forms 1041, 1065, or 1120-S must meet all specifications. The specifications include, but are not limited to, the following requirements.

The entity may have to pay a penalty if substitute Schedules K-1 are filed that do not conform to specifications.

Additionally, the IRS may consider the Schedules K-1 that do not conform to specifications as not being able to be processed and may return Form 1041, 1065, or 1120-S to the filer to be filed correctly.

Schedules K-1 that are 2-D bar-coded will continue to require prior approval from the IRS. (See Sections 7.1.3 through 7.1.5.)

Standardization for reporting information is required for recipient copies of substitute Schedules K-1 of Forms 1041, 1065, and 1120-S. Uniform visual standards are provided to increase compliance by allowing recipients and practitioners to more easily recognize a substitute Schedule K-1. The entity must furnish to each recipient a copy of Schedule K-1 that meets the following requirements.

Electronic filing is the preferred method of filing; however, 2-D bar code is the best alternative method for paper processing.

In an effort to improve efficiency and increase data accuracy, the IRS partnered with the tax software development community on a 2-D bar code project in 2003. Certain tax software packages have been modified to generate 2-D bar codes on Schedules K-1. As a result, when Schedules K-1 are printed using these programs, a bar code will print on the page.

Rather than manually transcribe information from the Schedule K-1, the IRS will scan the bar code and electronically upload the information from the Schedule K-1. This will result in more efficient operations within the IRS and fewer transcription errors for your clients.

Note. If software vendors do not want to produce bar-coded Schedules K-1, they may produce the official IRS Schedules K-1 but cannot use the expedited process for approving bar-coded Schedules K-1 and their parent returns as outlined in Section 7.1.6.

In addition to the requirements in Sections 7.1.1 and 7.1.2, the bar-coded Schedules K-1 must meet the following specifications.

Follow these general specifications for preparing all 2-D bar-coded Schedules K-1.

Prior to releasing commercially available tax software that creates bar-coded Schedules K-1, the printed schedule and the bar code must both be tested. If your company is creating bar-coded Schedules K-1, you must receive certification for both the printed Schedule K-1, as well as the bar code, before offering your product for sale. Bar-code testing must be done using the final official IRS Schedule K-1. Bar-code approval requests must be resubmitted for any subsequent changes to the official IRS form that would affect the bar code. Below are instructions and a sequence of events that will comprise the testing process.

In order to help provide incentives to the software development community to participate in the Schedule K-1 2-D project, the IRS has committed to expediting the testing of bar-coded Schedules K-1 and their associated parent returns. To receive this expedited service, follow the instructions below.

Increased standardization for reporting information on substitute Forms 8655 is now required to aid in processing and for compliance purposes. Follow the guidelines in Section 7.2.2.

Follow these specific requirements when producing substitute Forms 8655.

Because of how Form 8655 is processed and distributed to recipients, vendors are allowed to affix their logos onto the substitute version of the form. This exception is for Form 8655 only.

The following suggestions may be used as a guideline for creating easily scanned substitute tax forms. If you choose to participate, use the Form 1040 format provided in Exhibit C and Exhibit D. The grid view is for user ease of understanding only and should be removed before printing forms for submission.

Note. The exhibits are to show formatting only, and are not a current copy of the form. Use the most current version of any form to create the substitute tax form.

Certain forms have been redesigned for automated processing via ICR technology. As a result, these forms have different requirements for reproduction. These specific requirements apply to both the form image as well as the format of the variable data.

Electronic filing is a method by which authorized providers transmit tax return information to an IRS Service Center in the format of the official IRS forms. The IRS accepts both refund and balance due forms that are filed electronically.

Anyone wishing to participate in IRS e-file of tax returns must submit an e-file application. The application can be completed and submitted electronically on the IRS website at https://www.irs.gov after first registering for e-services on the website. For specific information about completing an e-file application to participate in IRS e-file of tax returns, refer to Pub. 3112, IRS e-file Application & Participation.

Taxpayers choosing to electronically prepare and file their returns will be required to use the Self-Select PIN method as their signatures.

Electronic return originators (EROs) can e-file individual income tax returns only if the returns are signed electronically using either the Self-Select or Practitioner PIN method.

Taxpayers must use Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return, to send supporting documents that are required to be submitted to the IRS.

For specific information about electronic filing, refer to Pub. 1345, Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns.

A participant in the electronic filing program who wants to develop a substitute form should follow the guidelines throughout this publication and send a sample form for approval to the Program at substituteforms@irs.gov. If you do not prepare substitute Form 8453 using a font in which all IRS wording fits on a single page, the form will not be accepted.

Note. Use of unapproved forms could result in suspension of the participant from the electronic filing program.

This revenue procedure supersedes Revenue Procedure 2023-28, 2023-43 I.R.B. 1092.

The proposed regulations under section 7701 would provide that an entity wholly owned by one or more Indian Tribal governments, within the meaning of section 7701(a)(40), that is organized or incorporated under the laws of the Tribe or Tribes that own it (wholly owned Tribal entity) is not recognized as a separate entity for Federal tax purposes. A single member limited liability company organized under the laws of the Tribe that owns it would be a wholly owned Tribal entity. Additionally, the proposed regulations would provide that wholly owned Tribal entities, as well as Tribes incorporated under section 17 of the Indian Reorganization Act of 1934, as amended, 25 U.S.C. 5124 (section 17 corporations), or under section 3 of the Oklahoma Indian Welfare Act, as amended, 25 U.S.C. 5203 (section 3 corporations), are treated, for purposes of making section 6417 elections (including determining eligibility for and the consequences of such elections), as instrumentalities of the Indian Tribal government(s) that wholly own them.

The Treasury Department and the IRS consulted with DOI on these proposed rules because of DOI’s role in working with Federally-recognized Indian Tribes and administering a broad array of Federal laws that affect Federally-recognized Indian Tribes. These proposed rules would address only the application of Federal tax law and would not affect the rights of Tribes and Tribal entities under other Federal laws.

The Treasury Department and the IRS continue to consider the Federal tax treatment of Tribally chartered corporations that are owned in part by persons other than Tribes. The Treasury Department and the IRS would conduct Tribal consultation prior to issuing any additional guidance in that area.

In December 2023, the President issued an executive order titled “Reforming Federal Funding and Support for Tribal Nations to Better Embrace Our Trust Responsibilities and Promote the Next Era of Tribal Self-Determination.” Executive Order 14112 (Dec. 6, 2023). Executive Order 14112 reaffirms the Executive Branch’s support for Tribal self-determination as the most effective policy for the economic growth of Tribal Nations and the economic well-being of Tribal citizens. Executive Order 14112 requires agency heads to take certain actions, consistent with applicable law and to the extent practicable, to increase access to “Federal funding and support programs for Tribal Nations”; provide Tribal Nations with the flexibility to improve economic growth and address the specific needs of their communities; and reduce administrative burdens. Section 2(b) of the Executive Order defines “Federal funding and support programs for Tribal Nations” as including “funding, programs, technical assistance, loans, grants, or other financial support or direct services that the Federal Government provides to Tribal Nations or Indians because of their status as Indians.” The Treasury Tribal Advisory Committee has advised that Tribes consider “financial support” in Executive Order 14112 to include tax matters that range from tax credits to Federal tax rules that regulate Tribal revenue.

Consistent with Executive Order 14112, the Treasury Department and the IRS recognize the importance of protecting and supporting Tribal sovereignty and self-determination. As the Executive Order explains, “As we continue to support Tribal Nations, we must respect their sovereignty by better ensuring that they are able to make their own decisions about where and how to meet the needs of their communities. No less than for any other sovereign, Tribal self-governance is about the fundamental right of a people to determine their own destiny and to prosper and flourish on their own terms.” These commitments build on a recognition of principles of sovereignty, sovereign immunity, and self-governance that have been repeatedly reaffirmed by the Supreme Court. See, e.g., Three Affiliated Tribes of the Fort Berthold Reservation v. Wold Engineering, P.C., et al., 476 U.S. 877, 890-91 (1986); Oklahoma Tax Comm’n v. Citizen Band Potawatomi Indian Tribe of Oklahoma, 498 U.S. 505, 510 (1991).

The Federal government has long recognized the unique aspects of Tribal sovereignty and Tribal sovereign immunity. Tribes themselves are not subject to Federal income tax under the Code.² IRS guidance on the issue in the 1960s raised questions about the extent to which section 17 corporations and section 3 corporations should share the Tribe’s Federal income tax status. In response, the IRS published further guidance and issued proposed regulations in 1996 on the treatment of section 17 corporations and section 3 corporations for Federal tax purposes. See the notice of proposed rulemaking, Simplification of Entity Classification Rules, (PS–43–95) published in the Federal Register (61 FR 21989) on May 13, 1996 (explaining the basis for the proposed rule later adopted as §301.7701-1(a)(3)).

On December 18, 1996, the Treasury Department and the IRS published final regulations (TD 8697) in the Federal Register (61 FR 66584) under section 7701, known as the entity classification regulations. Those still-existing regulations at §301.7701-1(a)(3) make clear that entities formed under local laws are not always recognized as separate entities for Federal tax purposes. For example, an organization wholly owned by a State is not recognized as a separate entity for Federal tax purposes if it is an integral part of the State. Similarly, those regulations provide that section 17 corporations and section 3 corporations are not recognized as separate entities for Federal tax purposes. The entity classification regulations, however, do not specifically address whether an organization formed under Tribal law and wholly owned by a Tribe (that is, a wholly owned Tribal entity) is recognized as a separate entity for Federal tax purposes.

The preamble to TD 8697 states that the IRS received a number of comments asking for clarification of the tax treatment of wholly owned Tribal entities. 61 FR 66584. The preamble also indicated that the Treasury Department and the IRS continued to study the issue and would issue additional guidance, if necessary. Id. at 66585-86.

Over the past several decades, Tribes have sought clarity concerning the Federal tax status of Tribally chartered corporations that are wholly owned by Tribes, in part to provide certainty for Tribal economic development and to support the generation of revenue for Indian Tribal governments. In order to obtain Tribal input on the issue, and in accordance with Executive Order 13175 (November 6, 2000), “Consultation and Coordination with Indian Tribal Governments,” and the Treasury Department’s Tribal Consultation Policy (80 FR 57434, September 23, 2015), superseded by Treasury Order 112-04 (November 22, 2023), the Treasury Department and the IRS most recently held Tribal consultations on the issue on June 21 and June 22, 2023, October 8 and October 10, 2019, and a listening session on December 3, 2019.

During Tribal consultations, Tribes have explained that they view Tribally chartered corporations as an exercise of their inherent sovereign authority to generate governmental revenue, self-govern the use of that revenue according to their own laws, and self-determine the use of that revenue for their citizenry. Tribes highlighted that Tribally chartered corporations enable Tribes to create entities that meet their emerging revenue opportunities, establish guidelines for the operation of these entities that are culturally appropriate and protect Tribal assets, and dissolve them when they are unneeded. Tribes also highlighted that Tribally chartered corporations are consistent with recent Federal policy that promotes Tribal sovereignty, self-governance, and self-determination in economic development activities.

In contrast, Tribes highlighted that section 17 and section 3 corporations are not sufficient to meet their needs. The incorporation process for these entities is a lengthy multi-step Federal process that subjects Tribal authority to Federal oversight and approval, results in increased administrative costs to Tribes, and requires an act of Congress to dissolve the chartered entity.

This issue has taken on increased salience in recent years, particularly with the enactment of laws, such as Public Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022, that extend greater access to capital and new economic opportunities to certain governments (including Indian Tribal governments), tax-exempt organizations, and other entities. Tribes have reiterated their requests for guidance through meetings of the Treasury Tribal Advisory Committee and other Tribal consultations.

In light of the considerations of Tribal sovereignty and self-determination described previously, the Treasury Department and the IRS propose to amend the existing section 7701 regulations to make clear that entities wholly owned by Tribes and organized or incorporated under the laws of the Tribes that own them generally are not recognized as separate entities for Federal tax purposes. Accordingly, such entities generally would be viewed as one and the same as the Tribes that own them for Federal tax purposes and would therefore not be subject to Federal income tax. In addition, the Treasury Department and the IRS are proposing to amend the existing regulations under section 6417 to provide that such entities and section 17 and section 3 corporations are treated as instrumentalities of the Indian Tribal governments that own them for purposes of making an elective payment election under section 6417 (including determining eligibility for and the consequences of the election). This would mean that the wholly owned Tribal entity itself, rather than the Indian Tribal government(s) owning the entity, would make a section 6417 election for an applicable credit determined with respect to any applicable credit property held directly by the wholly owned Tribal entity.

The Treasury Department and the IRS will conduct Tribal consultation before finalizing these regulations to obtain additional input on questions involving these proposed regulations. The content of these consultations will be published in a Tribal consultation summary.

These proposed regulations would address the Federal tax treatment of wholly owned Tribal entities (that is, entities wholly owned by Tribes and organized or incorporated exclusively under the laws of the Tribes that own them). Specifically, these proposed regulations would provide that such entities are not recognized as separate entities for Federal tax purposes (other than for purposes related to section 6417 elections described in part III of this Explanation of Provisions). The proposed regulations recognize that these entities share core characteristics with section 17 corporations and section 3 corporations, including that they are wholly owned by Tribes and benefit the Tribes by facilitating economic growth and Tribal rebuilding. Accordingly, just as section 17 corporations and section 3 corporations are not recognized as separate entities for Federal tax purposes and are thus not subject to Federal income tax on income earned in the conduct of commercial business on or off the organizing Tribe’s reservation, the proposed regulations would confirm that wholly owned Tribal entities would not be recognized as separate entities for Federal tax purposes and would not be subject to Federal income tax on income earned in the conduct of commercial business on or off the organizing Tribe’s reservation.

A. Tribal law

The proposed regulations would recognize that Tribal law is established by each individual Tribe. Where multiple Tribes work together to establish an entity that is owned by more than one Tribe, each Tribe would need to provide for the entity under its own laws.

B. Wholly owned

As is the case for determining the ownership of all corporations (including a corporation wholly owned by a State or other government), the determination of whether an outside investor (a person other than a Tribe) holds stock in a Tribal entity, such that it would fail to be wholly owned by one or more Indian Tribal governments for Federal tax purposes, would take into account principles of Federal tax law, such as the substance over form doctrine, debt versus equity analyses, and the economic substance doctrine.

Under these proposed regulations, an entity could satisfy the wholly owned requirement through a multi-Tribe ownership structure, so long as the entity is organized or incorporated under each Tribe’s laws. Proposed §301.7701-1(a)(4)(iii)(D) (Example 4) illustrates an example of the organizational structure of such an entity.

The proposed regulations would revise the elective pay regulations to provide that, for purposes of making a section 6417 election (including determining eligibility for and the consequences of such election), entities described in proposed §301.7701-1(a)(4)(i) (that is, section 17 corporations, section 3 corporations, and wholly owned Tribal entities), would be treated as instrumentalities of Indian Tribal governments. Under existing §1.6417-1(f), section 17 corporations and section 3 corporations are treated as “disregarded entities” for purposes of section 6417, and the applicable-entity owner of a disregarded entity that directly holds applicable credit property must make a section 6417 election for applicable credits determined with respect to such property pursuant to §1.6417-2(a)(1)(ii). Treatment as instrumentalities under these proposed regulations would mean that an entity described in proposed §301.7701-1(a)(4)(i) that directly owns applicable credit property would make the section 6417 election itself, rather than its owner or owners. Such an entity generally would do so by filing a Form 990-T, Exempt Organization Business Income Tax Return, as described in §1.6417-1(b)(2), using its own name and employer identification number.

The Treasury Department and the IRS are proposing this rule pursuant to the Secretary’s authority under section 6417(h) to issue such regulations or other guidance as may be necessary to carry out the purposes of section 6417, including guidance to ensure that the amount of the payment or deemed payment made under section 6417 is commensurate with the amount of the credit that would be otherwise allowable (determined without regard to section 38(c) of the Code). Given that proposed §301.7701-1(a)(4)(i) would generally provide that an entity owned by multiple Tribes is not recognized as a separate entity from those Tribes for Federal tax purposes, treating the entity as a “disregarded entity” for section 6417 purposes would have required each of the entity’s owners to make a section 6417 election with respect to an applicable credit determined with respect to an applicable credit property owned directly by the entity. That approach would have been administratively burdensome and complex for the Tribes that own the entity as well as for the IRS. Given the need for coordination among these Tribes in making consistent tax filings, it could also have resulted in cases in which the amount of the total payments or deemed payments claimed under section 6417 may not be commensurate with the amount of the underlying credit. In addition, even for an entity owned by a single Tribe, the entity directly owning the applicable credit property may be better positioned to fulfill the pre-filing registration and other requirements to make the section 6417 election. Accordingly, the proposed regulations are intended to simplify the filing obligations for Tribes and their wholly owned entities and ensure that the amount of any payment or deemed payment made under section 6417 will be commensurate with the amount of the credit that would be otherwise allowable.

In general, the determination of whether an entity is an agency or instrumentality is analyzed on a facts and circumstances basis. In determining whether an entity is an agency or instrumentality for Federal tax purposes, Federal courts have applied a test similar to the six-factor test in Rev. Rul. 57-128, 1957-1 C.B. 311, which generally provides guidance on whether an entity is an instrumentality for purposes of the exemptions from employment taxes under sections 3121(b)(7) and 3306(c)(7). See, e.g., Berini v. Federal Reserve Bank of St. Louis, Eighth District, 420 F. Supp. 2d 1021 (E.D. Mo. 2005) and Rose v. Long Island Railroad Pension Plan, 828 F.2d 910, 918 (2d Cir. 1987), cert. denied, 485 U.S. 936 (1988).

No inferences should be drawn from the instrumentality treatment in proposed §1.6417-1(c)(7) as to whether any particular entity is or is not an instrumentality in other contexts. The special rule in proposed §1.6417-1(c)(7) is informed in part by administrative considerations and would be issued under the express delegation of authority in section 6417(h) to promulgate rules that carry out the purposes of section 6417 and ensure that the amount of the payment or deemed payment made thereunder is commensurate with the amount of the underlying credit.

Executive Order 13175 (Consultation and Coordination With Indian Tribal Governments) prohibits an agency from publishing any rule that has Tribal implications if the rule either imposes substantial, direct compliance costs on Indian Tribal governments and is not required by statute, or preempts Tribal law, unless the agency meets the consultation and funding requirements of section 5 of the Executive order. This proposed rule would neither impose substantial, direct compliance costs on Indian Tribal governments nor preempt Tribal law within the meaning of the Executive order.

Consistent with Executive Order 14112 (described previously in the Background section), these proposed regulations would further Tribal self-determination and self-governance and reduce administrative burdens by providing entities wholly owned by Tribes and organized or incorporated under the laws of the Tribes that own them with the same Federal tax treatment that applies to section 17 corporations and section 3 corporations.

Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) generally requires that a Federal agency obtain the approval of the Office of Management and Budget (OMB) before collecting information from the public, whether such collection of information is mandatory, voluntary, or required to obtain or retain a benefit. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number.

The collection of information in these regulations contain reporting and recordkeeping requirements. The recordkeeping requirements mentioned within these final regulations are considered general tax records under §1.6001-1(e). These records are required for the IRS to validate that taxpayers have met the regulatory requirements and are entitled to make an elective payment election and to verify the Federal tax classification of entities described in these proposed regulations. For PRA purposes, general tax records are already approved by OMB under 1545-0047 for tax-exempt organizations and government entities.

These regulations also mention reporting requirements related to making elections under section 6417. These elections will be made by taxpayers on Forms 990-T, and credit calculations will be made on Form 3800 and supporting forms. These forms are approved under 1545-0047 for tax-exempt organizations and governmental entities.

Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), the Secretary of the Treasury hereby certifies that the proposed regulations will not have a significant economic impact on a substantial number of small entities pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6). These proposed regulations would affect entities that are wholly owned by Tribes. Additionally, no added burden is created through these proposed regulations; rather, these proposed regulations would expand the definition of an eligible entity for section 6417 of the Code but does not expand the requirements for entities to make the elective pay election. Although data is not readily available about the number of small entities that are potentially affected by this rule, it is possible that a substantial number of small entities may be affected.

To the extent the entities described in these regulations make elections under section 6417, the Treasury Department and the IRS certify the final regulatory flexibility analysis undertaken in TD 9988.

For the reasons stated, a regulatory flexibility analysis under the Regulatory Flexibility Act is not required. The Treasury Department and the IRS invite comments on the impact of the proposed regulations on small entities.

Pursuant to section 7805(f), this notice of proposed rulemaking has been submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on its impact on small business.

Section 202 of the Unfunded Mandate Reform Act of 1995 requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or Indian Tribal government, in the aggregate, or by the private sector, of $100 million (updated annually for inflation). These proposed regulations do not include any Federal mandate that may result in expenditures by State, local, or Indian Tribal governments or by the private sector in excess of that threshold.

Executive Order 13132 (Federalism) prohibits an agency from publishing any rule that has Federalism implications if the rule either imposes substantial, direct compliance costs on State and local governments, and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the executive order. These proposed regulations do not have Federalism implications and do not impose substantial, direct compliance costs on State and local governments or preempt State law within the meaning of the executive order.